How To Retire Comfortably in Alabama

How much do I need to retire? This guide will provide a clear path to retiring comfortably in Alabama, living on a guaranteed fixed income stream for the rest of a retiree’s life. You will learn how to:

• Take the guesswork out of retirement income planning.
• Solve for your fixed income amount.
• Increase your retirement income up to 24% by reducing tax liability.
• Efficiently structure your income from 3 different retirement plans.

This retirement income planning guide is ideal for

• Alabamians don’t want to spend less money when they retire but maintain or improve their lifestyles.
• Retirees know they’ll have to budget their savings and are looking for the best way to invest for income.
• Those who want to simplify their income problem by expecting a monthly paycheck as if they are still working.
• Consumers want more income than a CD but want the guarantees accompanying them.

The key to a comfortable retirement is laying a foundation for a fixed income to pay for essential monthly expenses as if you still were employed. Any investments outside the desired monthly paycheck are secondary.

The goal is to achieve your desired fixed income with the least money, leaving the remainder of your retirement savings for vacations, luxuries, investments, and emergencies.

• If you are far from retirement age, read Empower Retirement.
• If you are nearing or currently in retirement, read: How Long Will My Money Last in Retirement?

To retire comfortably in Alabama starting today, you must save at least $65,000.

Here’s how we came to this amount.

The Cost To Retire in Alabama

One must understand the statistics to understand how much it costs in Alabama.

Cost Of Living

According to the U.S. Census Bureau, the median monthly cost for rent or mortgage in 2019 is

• Mortgage: $1,186
• Rent: $792

The estimated monthly expenses for a couple in Birmingham are $2,026.28.

The inflation rate is currently at 1.6% in the Southeast region of the United States for the past year.

Is Retirement Income Taxable in Alabama?

• Federal Taxes: Between 12% and 24% on average.
• State Taxes: Between 1% and 5.75%.

The Cost of Healthcare

The cost of Medicare starts at $148.50 a month and can reach up to $504.90 monthly.

The Cost of Long-Term Care

In 2020, the average cost of care per year in the state of Alabama was

• Homemaker Services: $41,184
• Home Health Aide: $41,184
• Adult Day Care: $7,865
• Assisted Living Facility: $37,800
• Nursing Home Semi-Private Room: $78,475
• Nursing Home Private Room: $82,932

Funeral Costs

In Alabama, the average cost of a traditional funeral is $7,353.

Alabama State Tax Guide for Retirees

• The statewide sales tax ranges from 4% to 9.22%.
• The state of Alabama does not tax Social Security benefits.
• No estate or inheritance tax for Alabama retirees.
• Federal, state, local, and government employee retirement plans are exempt from taxes.
• Pension plans are exempt from state income taxes.
• Railroad Retirement Benefits are exempt.

So how Do We Generate a Guaranteed Income?

To create a fixed income, one must utilize a few retirement tools to create a guaranteed lifetime income. These tools are:

• Social Security Income: The average SSI paycheck in 2021 is $1,543 a month (per person).
• Roth IRA Annuity: Provide a monthly paycheck for life, tax-free. Retirement income increases up to 24%.
• Non-Qualified Annuity: Provides a monthly paycheck for life; only the interest earned is taxed.

By utilizing these three income sources, a retiree could collect a monthly paycheck for life and reduce their tax bill, leaving more money for savings to pay for long-term care costs.

Note: Once a Roth annuity is depleted, any supplemental payments from the insurance company may be subject to tax, as they no longer originate from tax-exempt contributions or profits, contingent on the distribution method. 

What if I don’t have a Roth Annuity or a Non-Qualified Annuity?

If you’re nearing retirement, you might not have these options for your income planning.

Don’t fret.

Like the other two retirement plans, you can roll over a 401k to an annuity, and roll over a roth ira to an annuity. However, you will be taxed on the total income amount versus none or a portion of your income from the Roth or non-qualified annuity.

Solving For Fixed Income

Based on the estimated monthly expenses, housing, and Medicare, a household (2 people) would need to generate the following month to pay for the essentials.

• Total Monthly Expenses with a Mortgage: $3,360.78 a month
• Total Monthly Expenses With Rent: $2,966.78 a month

You will need a few sources of income coming in monthly to pay for these costs:

• Social Security Income: A couple would bring in an average of $3,086 monthly.
• Level Income Annuity: $65,000 in retirement savings would generate an additional $274.00 a month for life.
• Increasing Income Annuity: $75,000 in retirement savings would generate an additional $274.00 a month for life and increase overtime to help with inflation.

Note* The annuity premium amounts can be lower depending on age and the time deferring in the annuity before starting the income stream. The longer you wait to begin the guaranteed lifetime income, the less money will be required to generate the desired income upfront.

You can find your Alabama Social Security Administration office here.

How To Pay for Long-Term Care in Alabama

Above, we mentioned the median costs of long-term care services and facilities in Alabama are costly. A long-term care annuity will offset these costs in the future. Let’s see how much retirement savings would pay for these services and costs.

Purchasing a Long-Term Care annuity with a portion of your retirement savings could quickly offset these costs. Most LTC annuities double or triple your investment to pay for these costs, tax-free, freeing up more of your retirement savings and fixed income that generally would pay for these expenses.

• Nursing Home (Private Room): $165,864 (Preferred) and $242,796 (Standard)
• Home Healthcare: $82,368 (Preferred) and $123,552 (Standard)
• Assisted Living: $75,600 (Preferred) and $113,400 (Standard)

How to Pay for a Funeral in Alabama

The average cost of a funeral in Alabama is $7,353. Burial Insurance (final expense) can offset these costs. A burial insurance policy can cost as little as $48.85 monthly for a $10,000 benefit at age 62. You can reduce that cost and get a $25,000 benefit by purchasing a 20-year term life insurance policy for as little as $27.27 a month.

How To Start Retiring Comfortably

• Calculate your essential monthly expenses.
• Subtract those expenses from your Social Security income.
• Request a quote for the remaining amount.
• Pick out your annuity and apply.
• Start the income at your targeted retirement age.
• Live comfortably.

Helpful Tip: If you need a cheap service to set up your entire estate plan, we recommend:

Next Steps

Most people want to retire comfortably but don’t know how much they need to save. This guide provides a clear path to retiring comfortably in Alabama by living on a guaranteed fixed income stream for the rest of your life. Please get in touch with us if you have any questions or want a quote.

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*Disclosure: Some of the links in this guide may be affiliate links. I may receive a commission at no cost if you purchase a policy. It helps us keep the lights on!